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VUKILE PROPERTY FUND LIMITED - Acquisition of Habaneras Shopping Centre

Release Date: 10/05/2018 09:11
Code(s): VKE VKC23 VKC24 VKC25 VKE07 VKE08 VKE09 VKE10 VKE11 VKE12     PDF:  
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Acquisition of Habaneras Shopping Centre

VUKILE PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2002/027194/06)
JSE share code: VKE NSX share code: VKN
ISIN: ZAE000180865
Debt company code: VKEI
(Granted REIT status with the JSE)
("Vukile" or "the company")

ACQUISITION OF HABANERAS SHOPPING CENTRE

1.    INTRODUCTION

      In line with Vukile's previously communicated strategy of increasing its exposure in Spain, Vukile's subsidiary
      Castellana Properties Socimi S.A. ("Castellana"), in which Vukile currently has a 98.7% shareholding, has
      entered into an agreement with Heref Habaneras Socimi S.A.U (the "seller") to acquire the immovable property
      known as the Habaneras Shopping Centre ("Habaneras") for an aggregate consideration of EUR80 626 864 (the
      "Habaneras acquisition").

2.    RATIONALE

      In July 2017 Vukile announced the acquisition by Castellana of a portfolio of eleven retail parks for EUR193
      million and the establishment of a strong in-country management team and operational platform. In December
      2017 Castellana concluded two transactions to acquire two additional Spanish retail parks for a total of EUR70
      million. The Habaneras acquisition allows Vukile, via Castellana, to leverage its operational platform and grow
      its Spanish portfolio of retail parks and shopping centres. The territories in which Castellana operates continue 
      to experience strong demand for space with limited prime retail space availability. The acquisition is expected to
      enhance Castellana's retail offering within its areas of operation.

      Habaneras is a well-located, recently refurbished shopping centre with a total gross lettable area of 24 158m2
      situated in Torrevieja, Alicante, Spain. Habaneras has a good tenant mix with a national tenant component of
      92%, including the Inditex Group, C&A, AKÍ and Forum Sport. It has a strong fashion component of 45%. The
      leading Carrefour in the region as well as a Lidl supermarket, cinemas and various fast food outlets are located 
      in the greater 60 000m2 retail node which Habaneras anchors. The centre has a weighted average lease termination
      of 6.1 years to expiry and 3.8 years to next breaks.

      It is expected that Castellana's active asset management will add value to Habaneras. Asset management
      initiatives will include leasing vacant space, adding lettable area to Habaneras, repositioning and expanding
      existing tenants' space and enhancing the centre's terraces by including more leisure options and experiences.

3.    TERMS OF THE HABANERAS ACQUISITION

      The effective date of the Habaneras acquisition is 9 May 2018.

      The purchase consideration payable for Habaneras is EUR80 626 864, payable in cash on the effective date.

      Whilst the seller has provided normal warranties, indemnities and undertakings for a transaction of this nature,
      the purchaser will need to rely on warranty and indemnity insurance underwritten by Ambridge Europe Limited
      to recover any financial claims arising from the transaction.

      Completion of the Habaneras acquisition is not subject to any conditions precedent.

4.    PROPERTY SPECIFIC INFORMATION

      Details of the property, including property name, geographical location, sector, GLA and weighted average rental
      per square metre are set out in the table below:
                                                                                                                       
                                                                    Weighted                   Purchase
                                                                average rental            consideration     Estimated
                                                                       per m2                (excluding   transaction
                                                               (EUR/m2 /month)              transaction       related
       Property         Geographical                    GLA    (11 months to 31                  costs)         costs
       name             location            Sector      (m2)           Mar 2019)                  (EUR)         (EUR)
       Habaneras        Torrevieja,         Retail     24 158              17.63             80 626 864     3 120 000
       Shopping         Alicante, Spain
       Centre

     The purchase consideration payable for Habaneras is considered to be its fair market value and equates to the fair
     market value determined by an independent valuation carried out by James Allwood of Colliers International
     Property Consultants Inc as at 23 January 2018. James Allwood is a member of the Royal Institute of Chartered
     Surveyors.

5.   FINANCIAL INFORMATION

     Set out below are the forecast revenue, operational net income, net profit after tax and earnings available for
     distribution of the acquisition (the "forecast") for the 11 months ending 31 March 2019 and year ending
     31 March 2020 (the "forecast period").

     The forecast has been prepared on the assumption that the Habaneras acquisition will be implemented on
     9 May 2018 and on the basis that the forecast includes forecast results for the duration of the forecast period.

     The forecast, including the assumptions on which it is based and the financial information from which it has been
     prepared, is the responsibility of the directors of the company. The forecast has not been reviewed or reported on
     by independent reporting accountants.

     The forecast presented in the table below has been prepared in accordance with the company's accounting
     policies, which are in compliance with International Financial Reporting Standards.

                                                                               11 months ending         Year ending
                                                                                  31 March 2019      31 March 2020
                                                                                           R'000              R'000
      Property revenue                                                                    72 959             81 354
      Straight-line rental income accrual                                                      -                  -
      Property expenses                                                                  (4 708)            (5 410)
      Net operating profit                                                                68 251             75 944
      Finance costs                                                                     (14 035)           (15 231)
      Net profit before tax                                                               54 216             60 713
      Taxation                                                                           (1 442)            (1 615)
      Net profit after tax                                                                52 774             59 098
      Profit available for distribution                                                   52 774             59 098

     Property Revenue

                                                                               11 months ending         Year ending
                                                                                  31 March 2019      31 March 2020
                                                                                          R'000               R'000
      Contracted                                                                         69 784              72 221
      Near-contracted                                                                     3 175               9 133
      Uncontracted                                                                            -                   -
      Total                                                                              72 959              81 354
                                                                                                                      
     Notes and assumptions

     The forecast incorporates the following material assumptions:
     1.    The forecast is based on information derived from the management accounts, budgets, and rental contracts
           provided by the seller.
     2.    All leases are CPI linked and therefore no straight line income adjustment has been made.
     3.    Contracted revenue is based on existing lease agreements including stipulated increases, all of which are
           valid and enforceable. Leases expiring during the forecast period have been forecast on a lease-by-lease
           basis and have been assumed to renew at current market rates unless the lessee has indicated its intention
           to terminate the lease. Lease income is classified as near contracted rental income from the date of expiry
           of the current lease.
     4.    Property operating expenditure has been forecast by the property manager on a line-by-line basis based on
           management's review of historical expenditure, where available, and discussion with the property manager.
     5.    Interest costs relating to the debt funding procured of R14.0 million (EUR0.93 million) at an all-in cost of
           2.38% have been included in the forecast.
     6.    No fair value adjustment is recognised.
     7.    Profit available for distribution is stated net of withholding tax of 2.66%.
     8.    A EUR:ZAR exchange rate of R15.1420 has been assumed for purposes of the forecast.
     9.    There will be no unforeseen economic factors that will affect any lessee's ability to meet their commitments
           in terms of existing lease agreements.

6.   CATEGORISATION OF THE HABANERAS ACQUISITION

     The Habaneras acquisition is classified as a category 2 transaction in terms of the JSE Listings Requirements.
     Accordingly, the Habaneras acquisition is not subject to approval by shareholders.

10 May 2018

Corporate advisor and JSE sponsor                     NSX sponsor
Java Capital                                          IJG Securities (Pty) Ltd

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